1942: Peru

Severing Relations with Axis.

Peru led the Latin American republics in severing relations with the Axis powers on Jan. 24, but not until April 16 was a ban placed on all types of commercial and financial operations with the Axis. This latter action was taken on the eve of a comprehensive economic agreement with the United States. On April 22 several United States-Peruvian agreements were signed covering the disposal of Peru's surplus cotton, the purchase and development of Peruvian rubber, the advance of $25,000,000 in Export-Import Bank credits to assist in constructing public works and agricultural, mining and industrial development, and the resumption of negotiations for an early settlement of the dollar debt. On May 7 a reciprocal trade pact was signed with the United States, granting mutual tariff concessions on a long list of items, representing 26 per cent of Peru's total trade. Lend-lease aid of an unannounced amount was granted on Mar. 11. As a result of this last, at least fifty planes and possibly other war material have already reached Peru, along with United States military personnel for training purposes.

Commerce and Trade.

The loss of the Japanese market after Pearl Harbor created a serious economic problem for this West Coast nation, since over 60 per cent of its cotton exports in 1941 went to Japan. The agreement of the United States to purchase, through the Commodity Credit Corporation, for the duration of the war, the unmarketable surplus, up to a maximum of 200,000 bales annually, whether or not it could be shipped, met a grave difficulty, therefore. By a program of crop control the Peruvian Government will now try to effect a reduction in the area planted to cotton and a shift to flax, rice, beans and other food crops. The favorable trade balance of 136,300,000 soles at the end of 1941 was due to the increased cotton exports, due to heavy Japanese buying, as well as to improved sugar and petroleum shipments. Trade figures in 1942 show little change from the previous year.

Peru profited by the cutting off of the Philippines sugar supply and its initial basic quota of 5,748 tons was revised to over 150,000 tons. With the elimination of quota limits this year, it may be able to ship 175,000 to 200,000 tons, provided shipping space can be found, but with the ceiling price on sugar and the United States duty of 1.875 cents a pound, little profit is left. A 50 per cent cut in the tariff on Peruvian sugar has been urged, therefore, on the Federal Committee for Reciprocity Information.

By the rubber agreement with the United States, similar to one already concluded with Brazil and subsequent pacts with other Latin American countries, the United States Rubber Reserve Company, a subsidiary of the Reconstruction Finance Corporation, will purchase for five years all Peru's exportable rubber. Moreover, the sum of $1,125,000 will be advanced for increased production and gathering of wild rubber in the Amazon region. For this purpose a Peruvian-Amazonian Corporation is to be established. The United States will also assist in the establishment of an agricultural experiment station at Tingo María, on the eastern slope of the Andes, in ideal rubber-growing country but situated on the Central Highway of Peru and, therefore, connected by good road with the Pacific.

United States Financial and Technical Aid.

At the close of the year it was reported that the Tingo María project was well under way. It is one of a series of such agricultural experiment stations being established throughout the American tropics, through United States financial and technical aid, to encourage the production, not only of rubber, but of other products formerly obtained from the Far East, such as quinine, which is native to South America, abacá and other fibers for rope, trees yielding vegetable oils, kapok, tea, mandioca and certain hard woods. The other countries in which similar stations are being started are San Salvador, Nicaragua and Ecuador. A general training and research center, a Tropical Institute of Agriculture, is being established in Costa Rica.

Industrialization will be stimulated by the establishment of a steel project, to cost $15,000,000 and to be financed out of the $25,000,000 Export-Import Bank credit already granted. The formal contract for this industry, the largest industrial undertaking in Peruvian history, was signed on Sept. 4, with the North American firm of H. A. Brassert and Company. The plant will probably be operated by the Peruvian Government. The project calls for the exploitation of rich iron ore deposits south of Lima and of coal deposits to the north. It is expected to have an annual steel output of 100,000 tons; coal production is estimated at 200,000 tons a year, half to be used by the steel mill, half to be exported to other South American countries. Peru has the largest coal reserves in South America. Manganese ore, which is indispensable in the iron and steel industry, must be imported.

The April 22 agreements included a provision for the resumption of negotiations for an early settlement of the dollar debt. The par value of all Peruvian bonds outstanding (national, provincial and municipal) totals $85,656,500. Unpaid interest equals about 62 per cent of the principal. A new interest in the New York market in low-priced Latin American dollar bonds has sent the prices up. The market value of the total of outstanding Peruvian dollar obligations recovered to about $13,000,000 from a low of $2,569,700 following the 1929 crash.

In August Panagra (Pan American Grace Airways, Inc.) established the first regularly scheduled commercial all-cargo service to be set up by an international air carrier. 'Box cars of the air' will make two round trips per week between Lima, Peru and Balboa in the Canal Zone, calling en route at the principal Peruvian, Ecuadorean and Colombian cities. Furthermore, service via the West Coast of South America between the Canal Zone and Buenos Aires has been increased from 4 to 7 flights a week. Through the achievement of these two goals Panagra is now firmly entrenched in the place formerly held by the German airlines, such as Lufthansa. (See ECUADOR for settlement of the Peruvian-Ecuadorean boundary dispute.)